Screen Shot 2015-11-25 at 3.53.15 PMKen Grady is a recognized thought leader in the legal industry. He is Lean Law Evangelist for Seyfarth Shaw LLP, and an Adjunct Professor at Michigan State University College of Law. He also is the Editor and principal author of the blog, named by the ABA Journal to its Blawg 100, the “list of the best in blogs about lawyers and the law.”

Ken frequently speaks on legal practice issues, including innovation, lean law, value-based pricing, leadership, efficiency, and change management. He was named to the Fastcase 50 award and honored by the Financial Times for innovative leadership of in-house /outside counsel relationships. 

Ken has more than twenty years of experience with Lean thinking and Lean Six Sigma. He received his Lean training in Japan through the consulting firm Shingijutsu Co., Ltd.

For his extensive experience in Lean Law and value-based pricing, we invited Ken to share his advice in our eBook 25 Secrets to Success with Alternative Fee Arrangements. The interview with Ken is a sequel of the topic he wrote about in his article “Making AFAs Mainstream: Two Proposals”. 

I: Ken, before we dig deeper in the AFA topic, tell us why do you prefer to say “appropriate fee arrangement”, rather than “alternative fee arrangement”?

K: In recent years, we have used many terms to describe fee arrangements that aren’t based on billable hours. Two of the most popular ones have been “value fee arrangements,” which the Association of Corporate Counsel popularized, and “alternative fee arrangements.” I have not been that comfortable with the alternative fee description, because it suggests that billable hour arrangements are the standard and all other arrangements are alternatives to the standard.

To me, the “appropriate fee arrangement” term (which conveniently uses the initials “AFA”) suggests we have a variety of fee arrangements in our toolkits, including the billable hour. Our job is to select the most appropriate arrangement for the situation. I believe that, in almost all cases, something other than the billable hour model will be most appropriate. However, there are times when you need a lawyer for just a couple hours of work and you don’t routinely use that lawyer. I don’t see much of a difference between agreeing to pay some amount per hour for a few hours or agreeing upon a fixed fee in that situation, so a billable hour model may be appropriate. The key is choosing the right tool for the job, not the label you put on the tool.

I: When did you realize that AFAs are more beneficial for lawyers than the billable hour? What made you change your mind?

K: I started using AFAs when I moved from a law firm to an in-house lawyer role, so I’ve used them for more than 20 years. Once you move into a corporate position and realize that almost everything a corporation buys, include many professional services other than legal services, are priced using something other than the billable hour, you start looking harder at the billable hour model.

The first company where I worked after leaving a law firm was moving from traditional manufacturing to lean manufacturing, so we looked at everything from a value perspective. As soon as you look at legal services from a value perspective, you begin challenging a lot of assumptions, including the billable hour.

As I learned how to use lean thinking to take waste out of any process, I asked “why can’t we do the same thing with legal services”? The next step was to ask whether what you pay should match the effort put in or the value received, and that takes you to AFAs.

One of the many benefits of AFAs is the alignment between service provider and client. As lawyers work to become more efficient, increase quality, and deliver what clients need effectively, the pressure to do valueless things reduces and that benefits everyone – including lawyers. Once you spend a lot of time learning and using lean thinking as a philosophy as well as a collection of methodologies, you get hooked on continuously improving things and finding ways to respect humanity in the workplace (the two main pillars of lean). At that point, for me, there was no going back to the billable hour as a preferred way to measure value.

I: You have a fascinating background in what is nowadays known as “Lean Law”. You received your Lean training in Japan, and you have over 20 years of experience with Lean thinking. Do you find law firms in Japan more innovative, lean, and effective than the law firms in Europe or the US? Is there a difference in their “mindset”?

lean law lean thinking kenneth grady interviewK: While this may seem strange, law firms in Japan are not far along in using lean thinking as part of their practices. Japanese law firms are not alone. Right now, US law firms have done the most to adopt lean thinking, with UK firms starting to catch up and some sparks elsewhere, including Latin America.

What Japanese law firms do and how they work with their clients is different than in the US. For example, litigation is frowned upon in Japan, so the firms don’t have large litigation practices like most US firms. The role of a lawyer in a Japanese company also, in general, is not equivalent to the role of a lawyer in a US company.

Overall, this means that the scope of legal work needed in Japan and the time spent on legal matters does not rise to the same level as in the US. In other words, in many ways the Japanese legal system is leaner than the US legal system so it hasn’t needed as much waste trimming as the US legal system.

I: In one of your latest articles, you ask the question “Are law firms just service providers?” What is your answer?

K: I think law firms have evolved today to be thought of by clients, and to think of themselves, as service providers. While any lawyer you ask would probably describe him or herself as a solution provider, they typically mean that in a narrower sense than I would when using the term. In fact, you can hear the difference when you talk to corporate employees. Years ago, outside lawyers would be invited into the boardroom or the CEO’s office to participate in strategic discussions about the business. Today, directors and CEOs will say something like “who are we using to document the deal?” when talking about outside lawyers. Corporate leaders think of lawyers as providing specific services, but not really as strategic partners.

The difference I draw is the role I think lawyers should aspire to play, and that is one of the strategic partner. The issues corporations face today grow more complex each day. That makes sense conceptually, since we know the world has gotten more complex over the years, but you also get that from what CEOs say. The top concerns of CEOs include areas such as geopolitical risk and cybersecurity. To navigate these risk areas, CEOs and companies need advisors with experience in many areas, not just consulting or technology. Lawyers have, I think, important skill sets they can bring to bear on these issues that add another dimension to discussions about strategy and solutions.

The problem all lawyers face is that they have let their days become burdened with technical tasks and mundane concerns. When you are trying to squeeze eight to ten billable hours into a day, plus administrative and marketing tasks, you don’t have time to  focus on the strategic. When your primary discussion with clients is about how many hours are on the bill or what billing rates you use, you don’t have time to consider how your client could change its risk profile given emerging risk trends. Lawyers have put themselves in small, bureaucratic, service provider boxes and now are surprised that clients don’t use them outside of those boxes.

To become (or regain) ground as strategic partners, lawyers need to move past the narrow, service provider role. Incidentally, in addition to lean thinking the strategic use of technology can help them get there.

I: Do you think that educating lawyers about the new pricing methods, as we do with our eBook and through our blog, is essential to attorneys?

K: Many years ago, a popular retail company on the East Coast of the US used the slogan “An Educated Customer is our Best Customer.” When it comes to using AFAs, an educated lawyer, in-house or outside, will be the best at using them. AFAs are superior to the billable hour in many ways, but they do require some things to make them work well. It helps if the parties to an AFA trust each other, and it helps if they understand how AFAs can and do work. Almost invariably when I hear a story about an AFA not working and I dig down to the root cause, it is that the parties to the AFA were not educated about using AFAs.

Learning aids, such as the eBook and the blog, help lawyers move from uneducated customers to the best customers for AFAs. Once they have learned how AFAs work, what mistakes to avoid, and proven ways to establish them, lawyers find that AFAs work as advertised. Our challenge right now is to continue the education process so that AFAs become the new normal in fee arrangements.

I: Well said! Thank you for your thoughts, Ken!

We recommend you to read more from Ken Grady in his blog, and in the free eBook 25 Secrets to Success with Alternative Fee Arrangements.

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